Fed raised interest rates by 0.5% but eased investors' fears of more aggressive hikes in the future

The Federal Reserve raised interest rates for the second time this year. As expected, the increase was 0.5%. But Chairman Jerome Powell eased investors' fears of more aggressive rate hikes in future meetings. This gave investors great optimism, leading to a surge in major stock indices. After the stock market closed yesterday, the Dow Jones Index (US30) increased by 2.81%, the S&P 500 (US500) added 2.99%, and the technology index NASDAQ (US100) jumped by 3.19%.

Highlights of Fed Chairman Jerome Powell's speech:
  • The Committee is not considering a sharper 75 basis point rate hike in the coming months, even as inflation continues to far exceed the Fed's 2% target.
  • A rate hike is not pleasant, but it is necessary to stabilize prices.
  • It's very good that we can bring inflation down without a significant increase in unemployment.
  • The economy is performing quite well.
  • We expect productivity to be stable this year.
  • Nothing in the economy suggests that it's close to a recession.
  • We have a good chance of regaining price stability without a recession.

According to the monetary policy protocol, the Committee will begin a balance sheet reduction program in June 2022. The decision was made unanimously.

It should not be forgotten that the first quarter of the 2022 reporting season is coming to an end.

Lyft shares fell almost 30% after publishing a more negative outlook for the second quarter. This was due to higher costs, as Lyft said they would have to increase costs to attract new drivers.

Uber Technologies posted better-than-expected results but fell more than 4% after reporting losses of $5.9 billion due to losses from investments in Grab, Aurora, and Didi.

Starbucks shares rose more than 9% after a chain of coffee shops reported first-quarter results, which exceeded analysts' estimates, helped by rising domestic sales.

Major European indices closed yesterday in the red zone. German DAX (DE30) decreased by 0.49%, French CAC 40 (FR40) lost 1.24%, Spanish IBEX 35 (ES35) fell by 1.04%, British FTSE 100 (UK100) lost 0.90%. The Bank of England is almost 100% likely to raise its key rate today by 25 basis points (0.25%) to 1%, the highest rate in 13 years and a threshold at which active quantitative tightening can begin. It is important to look closely at changes in the forecasts for gross domestic product and the consumer price index. GDP is likely to fall sharply in 2022, and inflation is expected to be revised upward. The pound may rise again if the forecasts are more optimistic.

The European Central Bank should not raise interest rates in July until the release of second-quarter GDP data, said ECB Council spokesman Fabio Panetta. It should be noted that more and more ECB policymakers are arguing for a rate hike at the July 21 policy meeting. The ECB's next meeting will take place on June 9, where it will likely decide to end its bond purchases, known as quantitative easing.

On Thursday, Shell reported a record first-quarter revenue of $9.13 billion, thanks to higher oil and gas prices and strong results from its trading department.

Crude oil prices jumped by 5% on Wednesday, reaching their highest level in six weeks, as the European Union said it would stop buying oil from Russia completely by the end of the year. The Fed's 50 basis point hike announced on Wednesday had little effect on the oil market. Analysts believe that oil prices are likely to continue rising as the market is fully focused on the monthly meeting of the OPEC+ today, which intends to keep a barrel at or above $100.

Asian stock markets were mostly decreasing yesterday. The Japanese market was not trading, Hong Kong's Hang Seng (HK50) lost 1.10%, and Australia's S&P/ASX 200 (AU200) was down by 0.16%. China's tougher measures to curb COVID-19 have led to a rapid decline in business activity in the services sector. Analysts' attention is now focused on the Australian and New Zealand dollars. The Reserve Bank of Australia began its interest rate hike cycle this week and has scheduled further tightening for its next meetings. At the same time, New Zealand's central bank began its interest rate hike cycle last week. Rising interest rates are usually accompanied by the strengthening of the national currency.

Main market quotes:

S&P 500 (F) (US500) 4,300.17 +124.69 (+2.99%)

Dow Jones (US30) 34,061.06 +932.27 (+2.81%)

DAX (DE40) 13,970.82 -68.65 (-0.49%)

FTSE 100 (UK100) 7,493.45 -67.88 (-0.90%)

USD Index 102.50 -0.96 (-0.93%)

Important events for today:
  • – China Services PMI (m/m) at 04:45 (GMT+3);
  • – Switzerland Consumer Price Index at 09:30 (m/m) (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – OPEC+ Meeting at 12:00 (GMT+3);
  • – UK BoE Inflation Report (m/m) at 14:00 (GMT+3);
  • – UK BoE Interest Rate Decision (m/m) at 14:00 (GMT+3);
  • – UK BoE Monetary Policy Statement (m/m) at 14:00 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

by Justforex, 2022.05.05

We advise you to get acquainted with the daily forecasts for the major currency pairs.

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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